Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC as regards the extension of the application period of the optional reverse charge mechanism in relation to supplies of certain goods and services susceptible to fraud and of the Quick Reaction Mechanism against VAT fraud
Date: 2022-02-10
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: VAT, basis of tax assessment, goods and services, provision of services, supply, tax harmonisation, tax law, tax offence, taxpayer

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   EUROPEAN COMMISSION  Brussels, 10.2.2022  COM(2022) 39 final 2022/0027 (CNS)  Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC as regards the extension of the application period of the optional reverse charge mechanism in relation to supplies of certain goods and services susceptible to fraud and of the Quick Reaction Mechanism against VAT fraud  
 
EXPLANATORY MEMORANDUM 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

The purpose of the current proposal for a Directive amending Council Directive 2006/112/EC 
of  28  November  2006  on  the  common  system  of  value  added  tax1  (hereafter  the  ‘VAT 
Directive’)  is  to  prolong:  1)  the  possibility  for  Member  States  to  apply  the  reverse  charge 
mechanism  to  combat  existing  fraud  in  supplies  of  goods  and  services  included  in  Article 
199a(1)  of  the  VAT  Directive  and  2)  the  possibility  to  use  the  Quick  Reaction  Mechanism 
(QRM), as set out in Article 199b of the VAT Directive, to combat fraud via the application 
of the reverse charge mechanism in very specific cases. 

As  a  general  rule,  Article  193  of  the  VAT  Directive  stipulates  that  the  taxable  person 
supplying  goods  or  services  is  liable  to  pay  VAT.  As  a  derogation,  the  reverse  charge 
mechanism allows to designate the recipient of the supply as the person liable for the payment 
of  VAT.  Under  this  reverse  charge  mechanism,  VAT  is  not  charged  by  the  supplier  but 
accounted  for  by  the  customer  (a  taxable  person)  in  his  VAT  return.  This  VAT  is  then 
deducted  in  that  same  VAT  return  and,  therefore,  insofar  this  person  has  a  full  right  of 
deduction, the result is nil. 

The reverse charge mechanism is used to combat fraud and in particular Missing Trader Intra-
Community  (MTIC)  fraud.  This  type  of  fraud  occurs  when  a  trader  acquires  goods, 
transported  or  dispatched  from  another  Member  State,  by  means  of  a  supply  exempt  from 
VAT, and sells them on including VAT on the invoice to the customer. After having received 
the VAT amount from the customer such trader disappears before paying the VAT due to the 
tax authorities. At the same time, the customer acting in good faith can normally deduct the 
VAT  he  paid  to  the  supplier  through  his  VAT  return.  Hence,  under  the  reverse  charge 
mechanism VAT is not effectively paid to the supplier. 

The  reverse  charge  mechanism  based  on  Article  199a  of  the  VAT  Directive  is  optional  for 
Member States to apply. It allows them to fight this type of fraud in the pre-defined sensitive 
areas where it typically occurs2 on their territory. Once suppliers are obliged to use the reverse 
charge mechanism for such domestic supplies, they cannot charge VAT on their invoice. They 
will  subsequently  not  receive  the  VAT  amount  from  their  customer  and,  as  a  result,  such 
traders cannot disappear with the amount of VAT received. The QRM of Article 199b is an 
exceptional  measure  allowing  Member  States  to  quickly  introduce,  in  cases  of  imperative 
urgency, a temporary reverse charge mechanism for supplies of goods and services in sectors 
where sudden and massive fraud occurred and which are not listed in Article 199a of the VAT 
Directive. This procedure is exceptional and extremely quick as the Commission has to react 
within one month, either with a negative opinion or to confirm in writing to the Member State 
concerned that it does not object the measure. The Member State may adopt the QRM special 
measure  from  the  date  of  receipt  of  that  confirmation.  By  using  this  mechanism,  Member 
States can bridge the period required for obtaining a ‘normal’ derogation under Article 395 of 
the VAT Directive, which can take up to six months. Such a derogation requires a proposal 
from the Commission and unanimous adoption by Council. 

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2 

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 
347, 11.12.2006, p.1). 
For  instance,  the  transfer  of  allowances  to  emit  greenhouse  gases,  supplies  of  mobile  telephones,  gas 
and electricity certificates, telecommunication services, and cereal and other industrial crops. 

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Article 199a of the VAT Directive was introduced3 for the period 2010 until 30 June 2015 and 
was  a  first  time  extended4,  with  amendments,  until  31  December  2018.  Article  199b  of  the 
VAT  Directive  was  introduced5  for  the  period  2013  until  31  December  2018.  Both  Articles 
199a and 199b of the VAT Directive were subsequently extended6 until 30 June 2022 in order 
to coincide with the initially foreseen date on which the VAT definitive system would enter 
into force (see more details below). 

At the time the application period of Articles 199a and 199b of the VAT Directive would be 
extended  until  30  June  2022,  the  Commission  presented  a  report  on  the  effects  of  the 
mechanisms  included  in  these  articles7  and  concluded,  on  the  basis  of  contributions  of  tax 
administrations  and business  stakeholders, that the measures in  these articles were useful in 
the fight against fraud. 

In order to deal with the issue of (MTIC) fraud in a more structural manner, the Commission 
made  a  proposal  for  the  introduction  of  the  so-called  definitive  VAT  system,  a  simpler  and 
fraud-proof  system  for  intra-Union  trade  of  goods8.  These  arrangements,  which  the 
Commission proposed to enter into force on 1 July 2022, provide a fundamental response to 
MTIC fraud. 

However, the state of play of the ongoing negotiations in the Council indicates that it will not 
be possible for the definitive VAT system to enter into force on 1 July 2022. In order to allow 
the negotiations on the definitive system to continue, without putting at risk the available tools 
in order to combat VAT fraud, it is appropriate to prolong the anti-fraud measures contained 
in the said articles for another limited period. 

To  extend  the  application  period  of  Articles  199a  and  199b  would  also  allow  developing 
further tools to fight tax evasion. To that end, and in accordance with the Tax Package9, the 
Commission is preparing a proposal in order to modernise the current VAT rules, taking into 

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Council  Directive  2010/23/EU  of  16  March  2010  amending  Directive  2006/112/EC  on  the  common 
system  of  value  added  tax,  as  regards  an  optional  and  temporary  application  of  the  reverse  charge 
mechanism in relation to supplies of certain services susceptible to fraud (OJ L 72, 20.3.2010, p. 1–2) 
Council  Directive  2013/43/EU  of  22  July  2013  amending  Directive  2006/112/EC  on  the  common 
system  of  value  added  tax,  as  regards  an  optional  and  temporary  application  of  the  reverse  charge 
mechanism  in  relation  to  supplies  of  certain  goods  and  services  susceptible  to  fraud  (OJ  L  201, 
26.7.2013, p. 4–6) 
Council  Directive  2013/42/EU  of  22  July  2013  amending  Directive  2006/112/EC  on  the  common 
system  of  value  added  tax,  as  regards  a  quick  Reaction  Mechanism  against  VAT  fraud  (OJ  L  201, 
26.7.2013, p.1). 
Council  Directive  (EU)  2018/1695  of  6  November  2018  amending  Directive  2006/112/EC  on  the 
common system of value added tax as regards the period of application of the optional reverse charge 
mechanism in relation to supplies of certain goods and services susceptible to fraud and of the Quick 
Reaction Mechanism against VAT fraud (OJ L 282, 12.11.2018, p. 5-7). 
Report  from  the  Commission  to  the  Council  and  the  European  Parliament  on  the  effects  of  Articles 
199a and 199b of Council Directive 2006/112/EC on combatting fraud, COM(2018) 118/2.  
The proposed introduction of the definitive VAT system is based on two different proposals for Council 
Directives:  one  setting  out  the  principles  of  the  system  and  one  detailing  the  technical  measures  to 
ensure 
respectively: 
Proposal  for  a  Council  Directive  amending  Directive  2006/112/EC  as  regards  harmonising  and 
simplifying  certain  rules  in  the  value  added  tax  system  and  introducing  the  definitive  system  for  the 
taxation of trade between Member States, COM(2017) 569 final.  
Proposal  for  a  Council  Directive  amending  Directive  2006/112/EC  as  regards  the  introduction  of  the 
detailed  technical  measures  for  the  operation  of  the  definitive  VAT  system  for  the  taxation  of  trade 
between Member States, COM(2018) 329 final. 
Communication from the Commission to the European Parliament and the Council - An action plan for 
fair and simple taxation supporting the recovery strategy, COM(2020) 312 final 

system.  These 

proposals 

operation 

effective 

are 

the 

the 

of 

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account  the  opportunities  offered  by  digital  technologies.  Under  the  heading  ‘VAT  in  the 
digital  age’,  the  Commission  will  assess  VAT  reporting  obligations,  possibly  including  on 
Transaction-Based  Reporting  (TBR)  and  an  enhanced  system  of  e-invoicing.  This  should 
provide  quicker  and  more  detailed 
tax 
administrations and therefore lower the risk of fraud. Based on such legislative developments, 
the need to further extend Articles 199a and 199b should be reassessed in the future. 

information  on 

transactions 

individual 

to 

• 

Consistency with existing policy provisions in the policy area 

The current proposal prolongs the measures, laid down in Articles 199a and 199b of the VAT 
Directive,  for  a  limited  period  while  the  negotiations  at  the  Council  on  the  proposal  for  a 
definitive  VAT  system,  which  includes  amendments  to  Articles  199a  and  199b  of  the  VAT 
Directive as to align them to the functioning of that definitive system, are continued. As the 
definitive  VAT  system  is  related  to  goods,  Articles  199a  and  199b  would  be  restricted  to 
services. 

The prolongation is also consistent with the timing of the Commission’s preparations for new 
reporting rules as an anti-fraud measure, which could result in the application of the reverse 
charge  mechanism  no  longer  being  required.  However,  even  if  these  new  reporting  rules 
would be adopted rather soon, a period of time would be needed for taxable persons to adapt 
to the new rules; an extension until the end of 2025 seems therefore adequate. 

• 

Consistency with other Union policies 

Article 199a of the VAT Directive covers under the reverse charge mechanism, among others, 
the EU trading in greenhouse gas emission allowances (EU Emission Trading System (ETS)). 
In  order  to  support  the  goals  of  the  Green  Deal,  in  particular  as  regards  the  reduction  of 
emissions  of  greenhouse  gases  by  55%  by  2030,  it  is  essential  that  the  ETS  is  further 
protected from (carousel) fraud as to avoid that, apart from the financial losses, the credibility 
of the system would be undermined. 

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

The  Directive  amends  the  VAT  Directive  on  the  basis  of  Article  113  of  the  Treaty  on  the 
Functioning of the European Union.  

As the proposal prolongs the application of certain provisions of the Directive, an amendment 
of the VAT Directive is necessary.  

• 

Subsidiarity (for non-exclusive competence)  

According to the principle of subsidiarity, as set out in Article 5(3) of the Treaty on European 
Union,  action  at  Union  level  may  only  be  taken  if  the  envisaged  aims  cannot  be  achieved 
sufficiently by the Member States alone and can therefore, by reason of the scale or effects of 
the proposed actions, be better achieved by the Union. 

The objective of fighting fraud via the application of the reverse charge mechanism and the 
possibility  to  use  the  Quick  Reaction  Mechanism  to  fight  sudden  and  massive  fraud  is  best 
achieved at Union level and finds its specific legal basis in the VAT Directive. Therefore, the 
prolongation of these measures requires an amendment to the VAT Directive.  

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• 

Proportionality 

Because of the  optional  and temporary character of the prolonged measures, the proposal  is 
proportionate  to  the  aim  pursued  which  is  to  combat  fraud  in  certain  supplies  of  goods  and 
services and help Member States to tackle sudden and massive VAT fraud.  

• 

Choice of the instrument 

A Directive is proposed in view of amending the VAT Directive.  

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Ex-post evaluations/fitness checks of existing legislation 

The Commission  presented a report, at  the time of the  prolongation, on the functioning and 
effects  of  the  reverse  charge  mechanism  in  relation  to  Articles  199a  and  199b  of  the  VAT 
Directive10 and concluded that the measures in these Articles were useful in the fight against 
fraud. 

This  in-depth  analysis  was  carried  out  rather  recently  and  the  VAT  Directive  has  not  been 
altered as regards the legal conditions or practicalities for the application of the reverse charge 
mechanism since then. Moreover, the VAT Directive has not  been significantly amended in 
order to tackle the issue of MTIC fraud in a more structural manner. Finally, the Commission 
services  have  no  information  on  new  sectors  which  would  be  prone  to  MTIC  fraud  and  for 
which  the  reverse  charge  mechanism  would  be  the  right  tool.  Therefore,  it  is  reasonable  to 
conclude that the above-mentioned findings are still valid. 

• 

Stakeholder consultations 

For the above-mentioned report, Member States were invited to provide their experience and 
assessment of the measures. Stakeholders were consulted via the VAT Expert Group. 

Member States generally considered the reverse charge mechanism included in Article 199a 
of  the  VAT  Directive  an  effective  and  efficient  tool  in  fighting  VAT  fraud.  Due  to  the 
introduction  of  the  reverse  charge  mechanism,  the  fraud  decreased  significantly  or 
disappeared in the defined sectors. This view was also shared in the replies received from the 
consulted business stakeholders who consider the reverse charge mechanism as an efficient, 
temporary measure for combatting fraud.  

Regarding the Quick Reaction Mechanism in Article 199b of the VAT Directive, although it 
was  never  used,  most  Member  States  considered  that  it  remained  a  useful  tool  and  a 
precautionary measure against exceptional cases of sudden VAT fraud. 

• 

Collection and use of expertise 

In the framework of the above-mentioned report, the VAT Expert Group has been consulted 
regarding the functioning and the effects of the measure included in Article 199a of the VAT 
Directive. The feedback indicated that the reverse charge mechanism for given supplies was 
considered an efficient, temporary tool for fighting fraud.  

10 

Report  from  the  Commission  to  the  Council  and  the  European  Parliament  on  the  effects  of  Articles 
199a and 199b of Council Directive 2006/112/EC on combatting fraud, COM(2018) 118/2.  

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In general, the optional reverse charge mechanism has been assessed in earlier studies11. An 
assessment  of  a  general  reverse  charge  mechanism  (also  comparing  to  the  sectorial  reverse 
charge) on the internal  market has been carried out in the impact assessment accompanying 
the proposal on the temporary application of a generalised reverse charge mechanism12.  

• 

Impact assessment 

The initiative prolongs for another limited period the measures included in Articles 199a and 
199b  of  the  VAT  Directive  to  support  Member  States  in  tackling  VAT  fraud  while  a  more 
comprehensive reform of the VAT system is being discussed by Member States in Council. 

Given the Commission's on-going work on the definitive VAT system and modernisation of 
reporting obligations, and its expected impact on the fight against fraud, it would not be useful 
for the moment to re-evaluate or revise the measures as any conclusions would be transitional 
and would need to be reassessed in the light of these possible new rules. 

4. 

BUDGETARY IMPLICATIONS 

The proposal will have no negative implications for the Union's budget.  

5. 

• 

OTHER ELEMENTS 

Detailed explanation of the specific provisions of the proposal 

As regards the optional reverse charge mechanism in Article 199a of the VAT Directive, two 
changes are proposed. 

First, the application period is extended until the end of 2025. This seems to be a reasonable 
period in order to allow Council negotiations on the definitive VAT system to continue. If the 
definitive VAT system does not enter into force before that date, the arrangements in Article 
199a of the VAT Directive might, because of the sunset clause, come to an end in 2025. If the 
definitive  VAT  system  would  enter  into  force  before  2025,  Articles  199a  and  199b  will  be 
amended and therefore replace the current rules which are being extended. 

Similarly,  this  extension  is  also  linked  to  the  development  and  adoption  of  a  Commission 
proposal  concerning  VAT  in  the  digital  age,  for  which  a  date  of  entry  into  force  cannot  be 
provided at this stage. The adoption of the proposal itself by the Commission is scheduled for 
2022. The end of 2025 is therefore also in this context a reasonable period for the Council to 
adopt the proposal. 

In case by the end of 2025 neither the definitive system nor the VAT in the digital age rules 
would be in place, a further extension of Articles 199a and 199b of the VAT Directive would 
be considered. 

Secondly, a small technical amendment is made as regards the deletion of outdated reporting 
obligations on which the above-mentioned report of the Commission was based. 

As  regards  the  Quick  Reaction  Mechanism  in  Article  199b  of  the  VAT  Directive,  the 
application period is also extended until the end of 2025. 

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See: https://ec.europa.eu/taxation_customs/system/files/2016-09/kp_07_14_060_en.pdf 
Impact assessment for the proposal as regards the temporary application of a generalised reverse charge 
mechanism in relation to supplies of goods and services above a certain threshold, SWD/2016/457. 

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2022/0027 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

amending Directive 2006/112/EC as regards the extension of the application period of 
the optional reverse charge mechanism in relation to supplies of certain goods and 
services susceptible to fraud and of the Quick Reaction Mechanism against VAT fraud 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 113 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national parliaments, 
Having regard to the opinion of the European Parliament1, 
Having regard to the opinion of the European Economic and Social Committee2, 

Acting in accordance with a special legislative procedure, 

Whereas: 

(1) 

(2) 

(3) 

1 
2 
3 

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Tax  fraud  in  the  field  of  value  added  tax  (VAT)  leads  to  considerable  budget  losses 
and has an impact on the operation of the internal market.  
Article  199a  of  Council  Directive  2006/112/EC3  provides  for  Member  States  to  use, 
on  an  optional  basis,  the  reverse  charge  mechanism  for  the  payment  of  VAT  on 
supplies  of  pre-defined  goods  and  services  that  are  susceptible  to  fraud,  and  in 
particular,  Missing  Trader  Intra-Community  (MTIC)  fraud.  The  Quick  Reaction 
Mechanism  (QRM)  special  measure  set  out  in  Article  199b  of  that  Directive    offers 
Member States, under certain  strict  conditions,  a faster procedure  that  allows for  the 
introduction  of  the  reverse  charge  mechanism,  resulting  in  a  more  adequate  and 
effective response to sudden and massive fraud. Both Articles expire on 30 June 2022.  
The  Commission  adopted  two  legislative  proposals4  for  the  introduction  of  the 
definitive  VAT  system,  which  should  provide  a  comprehensive  response  to  MTIC 
fraud.  These  proposals,  initially  foreseen  to  enter  into  force  on  1 July  2022,  are  still 
being  negotiated  at  the  Council  and  it  is  foreseeable  that  they  will  not  be  adopted 
before, and enter into force on, that date. 

OJ C , , p. . 
OJ C , , p. . 
Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 
347, 11.12.2006, p.1).  
Proposal for a Council Directive amending Directive 2006/112/EC as regards harmonising and 
simplifying certain rules in the value added tax system and introducing the definitive system for the 
taxation of trade between Member States, COM(2017) 569 final and  
proposal for a Council Directive amending Directive 2006/112/EC as regards the introduction of the 
detailed technical measures for the operation of the definitive VAT system for the taxation of trade 
between Member States, COM(2018) 329 final. 

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(4) 

(5) 

(6) 

Following  the  Tax  Package,5  and  under  the  heading  of  VAT  in  the  digital  age,  the 
Commission is also working on a proposal for  modernising reporting rules, a system 
that  would,  possibly  in  real-time,  provide  detailed  information  about  individual 
transactions to tax administrations and which could make the application of the reverse 
charge mechanism obsolete. 

In  2018,  the  Commission  reported  its  findings  on  the  effects  of  the  mechanisms 
included in Articles 199a and 199b of Directive 2006/112/EC on combatting fraud6. In 
the  report,  Member  States  and  stakeholders  generally  considered  the  reverse  charge 
mechanism set out in Article 199a of that Directive as an effective, temporary tool in 
fighting  VAT  fraud.  Further,  Member  States  considered  in  that  report  the  QRM  a 
useful tool and a precautionary measure against exceptional cases of VAT fraud. Since 
then,  the  legal  conditions  or  practicalities  for  the  application  of  the  reverse  charge 
mechanism  within  the  EU  VAT  system  have  not  been  altered.  Also,  the  VAT 
Directive has not significantly been amended in order to tackle the issue of the MTIC 
fraud  in  a  more  structural  manner.  It  is  therefore  reasonable  to  assume  that  these 
findings and considerations are still largely valid. 

In light of the above, it appears that the measures included in Articles 199a and 199b 
of Directive 2006/112/EC have been useful as temporary and targeted measures. Their 
expiration  would  deprive  Member  States  of  an  efficient  tool  to  fight  fraud;  it  is, 
therefore, appropriate to prolong those measures for another limited period of time as 
to allow negotiations in the Council to take place on the definitive VAT system, and to 
allow for the continued  development of modernised reporting rules, to be adopted in 
the meantime. 

(7) 

Directive 2006/112/EC should therefore be amended accordingly, 

HAS ADOPTED THIS DIRECTIVE: 

Directive 2006/112/EC is amended as follows: 

(1) 

Article 199a is amended as follows: 

Article 1 

(a) 

in paragraph 1, the introductory wording is replaced by the following: 

‘Until  31  December  2025,  Member  States  may  provide  that  the  person  liable 
for  the  payment  of  VAT  is  the  taxable  person  to  whom  any  of  the  following 
supplies are made:’; 

(b)  paragraphs 3, 4 and 5 are deleted; 

(2) 

in Article 199b, paragraph 6 is replaced by the following:  

‘6.  The  QRM  special  measure  as  provided  for  in  paragraph  1  shall  apply  until  31 

December 2025.’. 

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Communication from the Commission to the European Parliament and the Council - An action plan for 
fair and simple taxation supporting the recovery strategy, COM(2020) 312 final 
Report  from  the  Commission  to  the  Council  and  the  European  Parliament  on  the  effects  of  Articles 
199a and 199b of Council Directive 2006/112/EC on combatting fraud, COM(2018) 118/2.  

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This Directive shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

Article 2 

This Directive is addressed to the Member States. 

Done at Brussels, 

Article 3 

For the Council 
The President 

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